Pursuant to a congressional request, GAO reviewed the best practices
being used by delinquent debt collectors, and if they offer the Internal
Revenue Service (IRS) any prospects for improving collection efforts,
focusing on the: (1) uses and benefits of electronic funds transfer
(EFT); (2) experiences of two states that use EFT in their tax
installment agreement programs and the benefits they have obtained; and
(3) potential benefits IRS might realize by increasing EFT usage in its
installment agreement program.

GAO noted that: (1) EFT is widely used by various types of organizations
in receiving and transferring money; (2) it is used for various payment
transactions and for collecting consumer payments; (3) relative to paper
transactions, EFT provides better accuracy, lower mailing and processing
costs, and fewer delinquencies and defaults; (4) because of these
benefits, some financial organizations routinely offer incentives to
consumers who enter into EFT arrangements; (5) both Minnesota and
California changed their installment agreement programs to promote tax
payments by EFT; (6) Minnesota has required taxpayers entering into new
installment agreements since July 1995 to pay by EFT, with some
exceptions; (7) in April 1997, California initiated procedures to let
taxpayers make installment agreement payments by EFT; (8) as of
mid-November 1997, EFT usage was about 90 percent in Minnesota and about
60 percent in California; (9) according to state officials, Minnesota
and California both have seen a sharp decrease in their installment
agreement default rates, in part due to EFT; (10) in Minnesota,
officials said that default rates were reduced from about 50 percent to
between 3 and 5 percent; and in California, officials said that they
were reduced from about 40 percent to about 5 percent; (11) officials in
both states said that the lower default rates have resulted in
collecting revenues from installments faster; (12) officials in both
Minnesota and California said they have achieved administrative cost
savings from greater use of EFT, which has reduced the amount of paper
processing and mailing costs related to their installment agreement
programs; (13) additional administrative cost savings have occurred
because fewer resources have been needed for follow-up collection
enforcement on defaulted agreements; (14) IRS' installment agreement
program has not taken advantage of the benefits of EFT to the extent
that Minnesota and California reported, as only about 1.5 percent of
IRS' delinquent taxpayers were using EFT for installment agreements as
of September 30, 1997; (15) because its current program is similar to
these states' non-EFT programs, it seems likely that IRS could expect to
achieve a reduction in its installment agreement default rates and lower
administrative costs if more taxpayers paid their installments by EFT;
and (16) in fiscal year 1997, IRS' costs to process EFT installment
payments were 37 percent lower than the cost to process non-EFT
installment payments.